Capital appreciation bonds generally work this way: A district needing quick cash to build but with little in the bank works out what amounts to a long-term loan by selling bonds that do not mature for up to 40 years. Voters are then sold on approving the deal with the promise of no immediate increases in the property tax because the first payment is often pushed out for as long as 20 years.

     But what voters usually do not realize is that the terms include balloon payments and interest rates far higher than those charged for more conventional school construction bonds. That's because investors are willing to forego profits for two decades in return for reaping big returns in the future. ...

     ... "Unfortunately, Poway isn't the only district to use and abuse this type of financing," said state Treasurer Bill Lockyer.

     For example, a legislative review found that a San Bernardino County district will pay $6.6 million over 29 years for a $283,000 bond. Taxpayers in a Kern County district will be responsible for paying $15.5 million to close out a $1 million bond in 38 years. ...    

     ... Even the most conventional of tools, called a "Current Investment Bond," carries a 4-1 interest-to-principal debt service, compared to the mostly 2-1 for a typical home mortgage.

     Capital appreciation bonds, on the other hand, can run as high as 23-1 in the worst examples found by a state review. Of the 648 CABs issued since 2007, 349 carry a debt-to-principal ratio higher than 3.5 to 1. ...

     ... District arguments do not sway David Wolfe, the legislative director for the Howard Jarvis Taxpayers Association who supports the bill.

     "Nobody cares about the property owners who will have to pay the bills," he said.   Wolfe said the new public disclosure rules could help wake up voters, who are sold on the no-tax-increase pledge for 20 years without considering longer term consequences.    "People think bonds are free money," he said.